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Chapter 4: Early Days


The situation we are in today has evolved over many centuries. Economists had plenty of time and opportunity to comment – and comment they did. Only recently has it become highly controversial to notice that banks create money, let alone to discuss the implications.[1] This makes the comments of earlier economists particularly interesting – for their honesty and perceptiveness.

This chapter begins with economists commenting on the increasing power and influence of bank-credit. It finishes with a fascinating (and very modern) suggestion from 1707 of how money shouldbe created, fairly and realistically for the benefit of all. The proposal is similar to many reform proposals being put forward today.

Here are some features of bank-money that writers on economics were reacting to (some unfavourably, some favourably):

  • Bankers create more in ‘credit’ than they have in ‘cash’.
  • Their credit becomes money when it circulates in making payments.
  • When bank-credit becomes money, interest siphons money from working and productive people to wealthy and powerful people.[2]
  • Money created by banks increases the powers of government and concentrates the power of capital in fewer and fewer hands.
  • Bank-credit feeds war, predatory nationalism and national debt.
  • Increased concentrations of power bring new moral values: neglecting justice in favour of social management, exploitation and direction from above.

For roughly two thousand years, from the days of Aristotle to the end of the Middle Ages, economists did not pretend to be ‘scientists’. First and foremost, they were moral philosophers. They wrote about money and power in relation to law and the morality of human well-being. Aristotle, for instance, believed that money should be a means of exchange, not allowed to ‘breed’ more money.[3] Money, he said, is a human invention. We must be careful that it produces good, not evil.

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Olduvai IV: Courage
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